Of course, the $250,000 in cash will come in handy, because if you win the 2018 HGTV Dream Home you will need to be prepared for a hefty federal individual income tax bill and, depending on where you live, a state individual income tax bill—both of which I have estimated in this post.

This analysis excludes the multitude of other taxes such as any real estate, deed or transfer taxes and, most especially, the property tax which you pay year, after year, after year . . . well, you get the picture.

As they state in the rules: “All costs, taxes, fees, and expenses associated with a prize or the acceptance and use of any element of a prize not specifically addressed above are the sole responsibility of the winner. All federal, state, and local taxes on prize are winner’s responsibility. The Grand Prize Winner will be issued a 1099 tax form for the ARV of the prize.”

If you plan on keeping this home, you should be prepared to take on a second job or take out a home equity loan to pay Uncle Sam as the $250,000 in cash won’t cover it (no wonder Quicken Loans is sponsoring the cash award . . . they will be right at your side when you realize you need a loan).

Calculating the state income tax owed is much more complicated. Your home state provides a tax credit for income taxes paid to another state so you may owe additional income taxes if your home state levies a higher tax bill. If you think that sounds complicated, just imagine what professional athletes go through paying the "Jock Tax" (income tax) to every state they play in.

As such, the state income taxes you will pay if you win will solely be the income taxes levied by your home state, as shown in Table 1, unless you live in the nine states, including Washington, that do not have an individual income tax--Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, and Wyoming.

As shown in Table 1, the worst state to live in is California with combined federal and state income tax bill of $849,537, or 45.3 percent of the prize value. Following closely behind are Hawaii (combined tax bill of $818,559, 43.6 percent of the prize value), and Minnesota (combined tax bill of $799,129, 42.6 percent of the prize value).

Fortunately, HGTV does provide an escape hatch by offering cash in lieu of taking possession of the home worth $750,000 and you keep the $250,000 in cash and Honda Civic for a total value of $1,033,870. Again, as shown in Table 2, the worst states to live in are the same as above—California (combined tax bill of $425,769, 41.2 percent of the prize value), Hawaii (combined tax bill of $414,168, 40.1 percent of the prize value), and Minnesota (combined tax bill of $404,427, 39.1 percent of the prize value).

There is no clear-cut answer as to whether or not to keep the house, take the house and sell it, or opt for the cash value. If you look at the last two options, you might net more after-taxes if you take the house and sell it yourself—of course you hope the appraised value is close to the real market value at the time of sale which adds a degree of riskiness. Additionally, you may have issues with the Capital Gains tax which will further reduce the attractiveness of the sell-it-yourself option.

Tax assumptions: The tax analysis uses a married couple with two children taking the standard deduction and is based on 2017 law for state estimates.

Additionally, the recently enacted tax cuts under President Donald Trump will go into effect for the 2018 calendar year. Since the HGTV Dream Home will be awarded in 2018, the winner will pay their federal income taxes under the reformed tax code (as shown in Tables 1 and 2).

Lowers most of the income tax rates with the top tax rate reduced to 35 percent from 39.6 percent. Tax bracket widths were also modified.

The standard deduction is nearly doubled from $13,000 to $24,000 for a married couple.

Personal exemptions were eliminated, but the child tax credit was doubled to $2,000 from $1,000 per child.

Overall, I have estimated that these tax changes will save the HGTV Dream Home winner $54,074, if they keep the home, thus paying $624,749 to the IRS instead of $678,824. If the winner takes the cash-option, they would save $32,170 thus paying $313,031 to the IRS instead of $345,201.

J. Scott Moody

Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.